Small shops hit hardest by VAT hike

The Coalition government's move to hike VAT to 20% will hit local shops hardest, the Association of Convenience Stores has warned.

The Coalition government's move to hike VAT to 20% will hit local shops hardest, the Association of Convenience Stores has warned.

Chief executive James Lowman said the increase in VAT from 17.5% announced in Chancellor George Osborne's Budget was unfair on small firms.

"The much expected rise in VAT may be the least bad option for increasing tax revenue but it does present a risk to local shops," he said.

But Lowman welcomed the decision to delay putting VAT up until January 4.

"We warned the Chancellor not to implement the increase in VAT immediately as this would not allow retailers enough time to change prices on thousands of products. The delay also allows retailers time to sell through products with price marks and avoids the previous error of introducing the change on January 1," he said.

The Scottish Grocers' Federation added that small shops will be put at a further competitive disadvantage to the multiples because they will be unable to absorb a large increase in VAT.

"Usually small retailers will attempt to absorb any increase in VAT to ensure customer retention. However, this large increase in VAT means this will only be an option for the largest retailers," said John Drummond, chief executive of the SGF.

The timing of the VAT increase will mean "the crucial Christmas trading period is protected", according to Richard Lowe, head of retail & wholesale at Barclays Corporate.

"Bringing in the change on January 4 will also hopefully help stimulate sales between now and then as shoppers bring planned big-ticket purchases forward before the change," he added.

Yesterday's announcement that there will not be any further immediate increases in excise duty on wine and spirits was warmly received by the trade.

WSTA chief executive Jeremy Beadles said: "The announcement provides some relief for a sector that has faced substantial tax increases in recent years and I welcome the Chancellor's decision.

"Repeated tax hikes have produced less revenue for the Treasury and punished responsible drinkers, while failing to tackle the problem of binge-drinking."